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Management Risk

What is 'Management Risk'

The risks associated with ineffective, destructive or underperforming management, which hurts shareholders and the company or fund being managed. This term refers to the risk of the situation in which the company and shareholders would have been better off without the choices made by management.

Explaining 'Management Risk'

Management risk refers to the chance that company managers will put their own interests ahead of the interest of the company and shareholders. An example of this is the recent scandals with Enron, Worldcom and other large companies, whose managers acted in a manner that eventually bankrupted the companies and destroyed shareholder wealth. Management risk also applies to investment managers, whose decisions and actions may divert from the investors' wishes or reduce the value of an investment portfolio.


Further Reading


Quantitative risk management: Concepts
ideas.repec.org [PDF]
… PD Leake Professor of Accounting and Co-Director of the Center for the Analysis of Risk and Regulation, London School of Economics … Gregory Robbins, Assistant Professor of Strategic Management, Dupree College of Management, Georgia Institute of Technology …

Risk management for hedge funds: Introduction and overviewRisk management for hedge funds: Introduction and overview
www.tandfonline.com [PDF]
… PD Leake Professor of Accounting and Co-Director of the Center for the Analysis of Risk and Regulation, London School of Economics … Gregory Robbins, Assistant Professor of Strategic Management, Dupree College of Management, Georgia Institute of Technology …

How relevant is volatility forecasting for financial risk management?How relevant is volatility forecasting for financial risk management?
www.mitpressjournals.org [PDF]
… PD Leake Professor of Accounting and Co-Director of the Center for the Analysis of Risk and Regulation, London School of Economics … Gregory Robbins, Assistant Professor of Strategic Management, Dupree College of Management, Georgia Institute of Technology …

Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approachRisk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach
www.sciencedirect.com [PDF]
… PD Leake Professor of Accounting and Co-Director of the Center for the Analysis of Risk and Regulation, London School of Economics … Gregory Robbins, Assistant Professor of Strategic Management, Dupree College of Management, Georgia Institute of Technology …

Supply chain risk management in financial crises—A multiple case-study approachSupply chain risk management in financial crises—A multiple case-study approach
www.sciencedirect.com [PDF]
… PD Leake Professor of Accounting and Co-Director of the Center for the Analysis of Risk and Regulation, London School of Economics … Gregory Robbins, Assistant Professor of Strategic Management, Dupree College of Management, Georgia Institute of Technology …

Liquidity risk management and credit supply in the financial crisisLiquidity risk management and credit supply in the financial crisis
www.sciencedirect.com [PDF]
… PD Leake Professor of Accounting and Co-Director of the Center for the Analysis of Risk and Regulation, London School of Economics … Gregory Robbins, Assistant Professor of Strategic Management, Dupree College of Management, Georgia Institute of Technology …



Q&A About Management Risk


What is management risk?

Management risk refers to the chance that company managers will put their own interests ahead of the interest of the company and shareholders.

How does management risk affect shareholders and companies?

Management risk can hurt shareholders and companies by destroying shareholder wealth, bankrupting a company, or reducing an investment portfolio's value.

Are there different types of management risks?

Yes, there are different types.

What do you need to know about investment managers' decisions?

You need to know that they may divert from your wishes or reduce an investment portfolio's value.

What are examples of management risks?

Examples include Enron, Worldcom, and other large companies whose managers acted in a manner that eventually bankrupted the companies and destroyed shareholder wealth.

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